Airline industry may see long drought

Published: Saturday, September 22, 2001

BRAD FOSSAssociated Press

The airline industry was in awful shape long before airborne terrorist attacks sent shivers through the traveling public. Now, the synchronous decline of business travel spending and the U.S. economy are merely the backdrop to what many expect will be a long period of suffering for carriers  their solvency dependent upon huge layoffs and a multibillion-dollar bailout.

"We're so far away from break-even that it's not even worth calculating," said David Swierenga, chief economist at the Air Transport Association in Washington.

But calculate is exactly what airline executives did in detailing for Congress and the Bush administration their immediate and anticipated misfortunes and pleading for a gigantic relief package in hopes of staving off bankruptcies.

Analysts and economists have questioned whether the industry exaggerated its hand and bluffed the government into an unreasonably large bailout.

Nevertheless, Congress moved Friday to help the airlines recover from the staggering effects of the hijackings and terrorist strikes of Sept. 11.

Both the House and Senate, moving with uncharacteristic speed and unity, were ready to vote on a $15 billion relief package that included $5 billion in immediate grants and $10 billion in loan guarantees. It also would free United and American, whose airlines were hijacked, from some liability connected to last week's terrorist suicide missions.

"We will keep our airlines flying with direct assistance during this emergency," President Bush declared late Thursday as he readied the nation for a lengthy war on terrorism.

By the end of the week, with 20 percent fewer flights and tighter airport security visible nationwide, more than 60 percent of the seats on domestic flights remained empty.

As travelers retrenched, so did the airlines. More than 80,000 U.S. airline employees have been laid off, and executives warned that payrolls could be pared even further.

"This is a very painful decision," Richard Anderson, chief executive of Northwest Airlines said Friday in announcing 10,000 job cuts.

The only major carrier that had not officially announced layoffs by Friday was Delta, and its employees were warned to expect them soon.

Some industry watchers believe airline executives may be overstating attack-related losses and that the government is underestimating the carriers' longer-term woes.

"Implausible but not impossible" is how UBS Warburg analyst Sam Buttrick described the industry's forecasts of $5 billion to $6 billion in after-tax losses by the end of the year directly related to the attacks. Buttrick, a widely respected analyst, said the attack-related losses for 2001 were probably closer to $2.1 billion to $3 billion.

Austan Goolsbee, an economist at the University of Chicago's Graduate School of Business, said the government needed to make a clearer distinction between the dire short-term situation, caused by events beyond the industry's control, and pre-existing inefficiencies that made layoffs and bankruptcies likely prior to the attacks.

"All the bailouts in the world are not going to change the economics of the industry, which is that demand went down," he said.

With travel agents, aircraft manufacturers and the entire tourism industry reeling from the aftershocks of four fateful hijackings on Sept. 11, there is ample evidence that images of the destroyed World Trade Center and damaged Pentagon caused widespread fear among travelers.

Mary Peters of Friendly Travel in Alexandria, Va., said roughly 70 percent of flights planned through November were canceled, meaning lost commissions and booking fees. Peters canceled $140,000 worth of airline tickets in one day.

At Los Angeles International Airport on Thursday, empty shuttle buses working for hotel and car rental companies trolled for customers at the world's third busiest airport, but there were few takers.

"It's a ghost town," said Robert Woodard, assistant manager at the Terminal ReXall Pharmacy at Miami International Airport.

With each passing day last week, the likelihood of a recession grew, the stock markets fell and the president promised "war" against terrorists and the countries that harbor them.

Now, aside from wondering which carrier is most likely to file for bankruptcy, the question on most industry minds is what it will take to lure travelers to the skies.

"I would like to see an immediate and highly visible show of armed guards on airplanes," said Kevin Mitchell, chairman of the Business Travel Coalition, which lobbies the industry on behalf of large corporations. "You just gotta do it. Otherwise, the flying public's not coming back anytime soon."

Amtrak's ridership has grown by about 17 percent in the past week and many corporate travelers have shifted their business to chartered flights to avoid new security delays at major airports.

Mitchell said overall business travel spending, which makes up more than half of the commercial airlines' revenues, will be down about 50 percent by the end of the year.

Travel agents said lower fares would help bring back some leisure travelers, although evidence of reduced prices were limited.

In the meantime, the president of the American Society of Travel Agents, Richard Copland, suggested patriotic Americans consider flying as a way to support the anemic economy.

"They used to say buy war bonds," he said. "Now the saying should be get on an airplane."